AS-05 (v) Actuarial Aspects of Risk Management Mock Test 16
This section explains key concepts in financial risk management, interest rate risk, liquidity management, and enterprise risk management. It discusses the limitations of GAP management, risk prioritization based on likelihood and severity, and historical market events such as Black Monday. The chapter explains operating leverage, liquidity measurement, and the classification of major enterprise risks. It also introduces Incurred But Not Reported (IBNR) reserves, impairment provisions, and financial conditions related to debt. Additionally, it highlights the limitations of Value at Risk (VaR) and explains how Expected Shortfall provides a better measure by considering the severity of losses beyond the VaR threshold.
1. Which of the following is listed as a limitation of GAP management as a tool for managing IRR?
A. It guarantees profit
B. It needs no data
C. It ignores liquidity entirely
D. Financial institutions normally cannot out-predict markets
E. It removes all risk
2. Which step involves ranking risks in order of importance, blending severity with likelihood?
A. Establish context
B. Monitor
C. Identify risks
D. Prioritize
E. Analyze consequences
3. The October 1987 stock market crash, often referred to as 'Black Monday', involved a single-day drop of about:
A. 0.05
B. 0.5
C. 0.02
D. 0.23
E. 0.12
4. What does operating leverage refer to?
A. The use of fixed costs in production over variable costs
B. The use of only tax costs
C. The use of only marketing costs
D. The use of only labour costs
E. The use of only variable costs
5. The chapter proposes four lists of 10 most important risks classified by which factors?
A. Time, place, manner, and reason
B. Profit, loss, revenue, and cost
C. Exposure at risk, level of risk control, probability of risky event, and expected losses
D. Colour, size, weight, and shape
E. Salary, age, gender, and location
6. The liquidity measurement process consists of evaluating liquidity consumption and:
A. Liquidity advertising
B. Liquidity taxation
C. Liquidity branding
D. Liquidity provision
E. Liquidity recruitment
7. What does IBNR stand for?
A. Insurance Backed Net Reserve
B. Interest Bearing Note Reserve
C. Income Before Net Reserves
D. Incurred but not reported
E. Initial Basic Net Reserve
8. An impairment provision is generally recorded when:
A. Dividends are paid
B. Premiums are earned
C. Profits rise
D. Shares are issued
E. A book value of an asset is significantly higher than its fair value
9. Which condition relates to the existing levels of debt (financial risk)?
A. Operating Conditions
B. Market Conditions
C. Tax Conditions
D. Economic Conditions
E. Financial Conditions
10. Expected Shortfall addresses the problem of VaR not accounting for:
A. Average prices
B. Dividend payments
C. Market opening hours
D. The magnitude of the loss given that the loss exceeds the VaR number
E. Daily returns
